Ninth Circuit Issues a Positive Decision for Employers in the World of Background Checks

In recent years, California employers have faced an increasing number of class action lawsuits related to background check practices commonly used in the hiring process. These lawsuits arise from the Fair Credit Reporting Act (FCRA), a federal law that regulates the collection, dissemination, and use of consumer information.

In the employment context, the FCRA imposes certain conditions on employers that procure consumer reports for use in employment-related decisions. Chief among these conditions is that employers cannot obtain consumer reports on job applicants (or current employees) unless “a clear and conspicuous disclosure has been made in writing … in a document that consists solely of the disclosure.” This means, for example, that job applicants must be made aware that their potential employers may conduct background checks on them that can affect their employment eligibility. The “consists solely of” phrase of this law is often referred to as the “standalone” requirement.

The FCRA also requires an applicant or employee to authorize in writing the employer’s collection of the consumer reports for employment purposes. The law permits, but does not require, that the authorization be made in the same document as the disclosure.

The contours of the “consists solely of” and “clear and conspicuous” standards have been hotly litigated in the last few years and have led to several decisions from the U.S. Court of Appeals for the Ninth Circuit that have been unfavorable for employers. A recent Ninth Circuit decision in Luna v. Hansen & Adkins Auto Transport, Inc., No. 18-55804 (April 24, 2020), however, represented a positive development for employers because the ruling limited a claimant’s attempt to stretch the FCRA beyond its plain language.

Background

Plaintiff Leonard Luna filed a putative class action against his former employer, Hansen & Adkins, a vehicle transportation business, alleging that “Hansen & Adkins’s hiring process violated [the] FCRA’s disclosure and authorization requirements.”

Hansen & Adkins required prospective employees to complete commercial driver employment applications consisting of notices and authorizations allowing the company to obtain safety histories and driving records, and conduct drug and background checks—all of which constituted “consumer reports” within the meaning of the FCRA. Job applicants signed two documents: (1) a disclosure form, which informed them that “reports verifying your previous employment, previous drug and alcohol test results, and your driving record may be obtained on you for employment purposes” and (2) a document requesting signed authorization allowing Hansen & Adkins to investigate previous records of employment. The authorization, which contained “other notices, waivers, and agreements” unrelated to the consumer reports, appeared at the end of the application.

The Ninth Circuit Rejects Narrow Interpretation of the FCRA

Luna first argued that Hansen & Adkins violated the FCRA’s standalone requirement by presenting the disclosure along with other application materials. The Ninth Circuit made short shrift of this argument, noting that it had “decisively rejected” it in Gilberg v. California Check Cashing Stores, LLC, No. 17-16263 (January 29, 2019).

The court reaffirmed that an employer would not violate the FCRA’s standalone requirement by simultaneously providing the disclosure with other application materials. Significantly, the court emphasized that an employer would risk FCRA noncompliance every time it provided written application materials if a temporal requirement existed to provide disclosures separately. The court also noted that “Hansen & Adkins’s disclosure may have been provided alongside other application materials, but it appeared in a standalone document—precisely what [the] FCRA requires.”

Luna next contended that Hansen & Adkins violated the FCRA by failing to put the authorization in a clear and conspicuous standalone document. In Gilberg, the Ninth Circuit found that failing to provide the disclosure in a standalone document would violate the FCRA’s “consists solely of” standard, as any other information included with the disclosure is “extraneous.” Gilberg did not, however, impose a similar standalone requirement for the authorization—a separate provision of the FCRA. The court rejected Luna’s attempt to superimpose the standalone disclosure requirement from Gilberg onto the authorization component. The FCRA’s authorization language in the FCRA plainly lacks the disclosure’s standalone mandate.

The court also dismissed Luna’s argument that the “co-presentation of the disclosure and authorization render[ed] the disclosure neither clear nor conspicuous.” The court concluded that Hansen & Adkins’s disclosure was “both [clear and conspicuous], and applicants … can be expected to notice a bolded, underlined, capital-lettered heading.”

Key Takeaways

The Luna decision represents a favorable development for employers in that it clarifies the issue of whether the FCRA-required disclosure may be provided alongside other employment materials. Perhaps of greater significance, the decision may discourage attempts to graft the strict standalone disclosure requirement onto other provisions of the FCRA. Indeed, it may even signal an unwillingness on the part of courts in the Ninth Circuit to accept novel arguments creating FCRA obligations not grounded in the language of the law itself.